Closing 155 of its retail locations wasn't enough to prevent bankruptcy for Circuit City

The state of the global economy and that of the U.S. economy are making things difficult on many companies in the U.S. as sales fall and credit terms tighten. Consumer electronics retailers and computer manufacturers are among the companies that are feeling much of the economic pressure.

One of the biggest retailers to find itself in a serious economic crunch is Circuit City. The consumer electronics retailer announced today that it is filing for Chapter 11 bankruptcy to protect itself from creditors after cash flow problems began to prevent it from completing its turnaround efforts.

The bankruptcy filing is far from the first sign that the electronics retailer was suffering. Circuit City announced just last week that it was closing 155 of its stores across America. The massive store closures would eliminate 17% of Circuit City's U.S. workforce.

Reuters reports that out of the last six quarters Circuit City has reported a loss in five of them. The consumer electronics leader is Best Buy followed closely by Wal-Mart according to Reuters. Losing the competition posed by Circuit City in the markets where its stores are closing would at a glance seem to be a good thing for other consumer electronics retailers.

However, Circuit City is having massive liquidation sales at the closing locations that could prove to be a big problem for Best Buy – at least in the short term. In the beginning stages of the liquidation sales discounts at Circuit City are said to be at least 30%. As time goes by and the stores get nearer to closing, the discounts will only get bigger. The discounted merchandise could pull important holiday shoppers from the more stable electronics retailers into closing Circuit City stores.

Analyst Dan Binder from Jefferies & Co told Reuters, "Longer term, you've got Best Buy, who's dominant in the sector, taking share. But in the short run it could feel the pain of the liquidation activity."

Filings from Circuit City for Chapter 11 showed the company had $3.4 billion in assets and $2.32 billion in debt as of August 31 with more than 100,000 creditors. Circuit City first started to consider closing stores in October. At the time the Wall Street Journal reported that the closing of the stores was an attempt to stave off Chapter 11.

Only a few weeks later Circuit City announced on November 3 its plans for closing the 155 stores across the country. A big factor in the decision to file Chapter 11 was the fact that Circuit Creditors had tightened credit terms extended to the retailer considerably. Some creditors were even requiring upfront payments before shipping goods.

Circuit City CFO Bruce Besanko wrote in a court filing, "In large part, a Chapter 11 filing is due to three factors, all of which contributed to a liquidity crisis that prevented the company from completing its turnaround goals outside of formal proceedings: erosion of vendor confidence, decreased liquidity and a global economic crisis."

Best Buy had said previously that it would consider taking over locations that rivals closed. There is no word from Best Buy on whether it will take over any of the Circuit City stores that are closing.

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quote: I used to go to CC because I loved the fact that I could get my money back without any questions if my purchase was defective in any way.

If your purchase is defective, any reputable retailer should allow you to return it.

I stopped shopping at Best Buy for that reason. I bought the original Baldur's Gate, and there was glue all over the first disc. I couldn't get it off, and the discs were unreadable, yet they would not allow me to exchange it for another copy of the same software.

Say what you will about Circuit City, but at least they wouldn't have done that.

quote: I stopped shopping at Best Buy for that reason. I bought the original Baldur's Gate, and there was glue all over the first disc. I couldn't get it off, and the discs were unreadable, yet they would not allow me to exchange it for another copy of the same software.

No, it's true. I argued up and down with customer service, and even got a manager involved. They said "you can't return opened software." I said I wasn't returning it, I was exchanging it. No go. I had to contact the manufacturer to get a replacement disc.

Interplay apologized to me, and told me that a lot of people had the same problem. The disc was physically glued to the cardboard sleeve because the discs were inserted before the glue had dried. In my case, only the first disc was affected, but they wanted to replace them all.

I know it wasn't the official Best Buy company policy, and I know that you can find idiots who aren't capable of understand their company's policies working just about anywhere. I've occasionally bought stuff from other Best Buy stores, but the one that ripped me off is the closest to my house, and I'm not going to shop there again.

Bzzzt. This was a known problem with BG. They totally screwed up the packaging while trying to save a few bucks by not using normal cases for the multiple disks. My version was also hosed but I downloaded the disk instead of bothering with getting it fixed.